Development of Russian Political Uncertainty Index (RPUI): Textual Analysis

Abstract

The article is devoted to the characteristics of political uncertainty and its influence on stock market. Intensification of political factors' pressure on financial market defined the necessity to set up an indicator that will assess the political uncertainty. For this purpose factors specifying the political uncertainty were found out on the basis of existing approaches – governor's personality, parliamentary elections, civil servants' change frequency, president's election, revolutions and political regime are among the factors.There are several indicators developed on the basis of the defined factors that give an assessment of the political uncertainty level. One of the most popular – Index of Economic Policy Uncertainty (EPU index) – is constructed in terms of text analysis method using the estimation of media coverage. This index became the background of developing the author's index of political uncertainty for Russian companies, which differs by analysis of a wider empirical basis and applying an extended dictionary of economic terms. In order to deepen research two indexes directed to Russia Sanctions analysis were also constructed. The high level of the developed political uncertainty index accuracy for Russia was proved during its testing on the empirical basis for period from 2013 to 2018 in comparison with EPU index. An inverse relation between the level of political uncertainty and stock index was also determined using econometric methods. Therefore, a negative influence of political uncertainty on Russian stock market was proved.